雅各布工程 (J) 2024 Q3 法說會逐字稿

Thank you for standing by.

My name is Krista, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Jacobs Solution third quarter 2024 earnings conference call and webcast.

(Operator Instructions)

Thank you.

I will now turn the conference over to Ayan Banerjee, Senior Vice President of Investor Relations and Finance.

Ayan, you may begin your conference.

Thank you.

Good morning.

Our earnings announcement was filed this morning, and we have posted a slide presentation on our website, which we will refer during the call.

I would like to refer you to slide 2 of the presentation material for information about our forward-looking statements, non-GAAP financial measures and operating metrics.

Turning to the agenda on slide 3, speaking on today's call will be Jacobs' CEO, Bob Pragada; Special Advisor to the CEO, Kevin Berryman, as well as our new CFO, Venk Nathamuni.

Bob will begin by providing an overview of recent activities and then summarizing highlights from our third quarter results.

Kevin will provide a more in-depth discussion of our financial metrics.

Venk will then provide a review of our balance sheet and cash flow and provide comments around our guidance and Investor Day.

Finally, Bob will provide closing remarks, and then we will open up the call for your questions.

With that, I will turn it over to CEO, Bob Iger.

Thank you, Ayan.

Good day, everyone, and thank you for joining us to discuss our third quarter fiscal year 2024 business performance.

I'm joined today by my Special Adviser, Kevin Berryman, who acted as Interim CFO into June and will therefore, report our financials.

I'm delighted to also welcome our new CFO, Venk Nathamuni on his first earnings call for Jacobs.

Venk joined us in June and will provide details on guidance.

Venk brings a wealth of knowledge and expertise from his 30 plus year career and I am excited to work in partnership with him moving forward.

Kevin will continue in his role as Special Advisor to me to drive a successful conclusion to the separation and merger of our Critical Mission Solutions and Cyber Intelligence businesses with momentum.

I'd like to extend my gratitude for Kevin for the ongoing support.

Now moving to slide 4.

We continue to make progress on our strategic shift toward a simpler, higher value, higher margin portfolio and remain confident in driving margin expansion over the coming year.

Turning to slide 5, I am pleased to report significant progress on the previously announced planned spinoff of our Critical Mission Solutions and Cyber Intelligence businesses.

An updated Form 10 was publicly filed yesterday with the US Securities and Exchange Commission.

This filing made under Amazon Holdco Inc. includes important business and financial information about the intended merger with momentum to create a leading publicly traded global government services provider.

A momentum, we'll provide additional details during their Capital Markets Day on Tuesday, August 13, 2024.

The transaction is now anticipated to be completed in the second half of September 2024.

Turning to slide 6 in Q3, I will now share our third quarter achievements, highlighted by strong backlog growth, consolidated margin expansion and P&PS record backlog and strong adjusted operating margin.

This period saw a continuation of a mix shift to higher margin, science-based consulting and advisory services that offer significantly higher returns contributing to an overall margin expansion, notably led by P&PS and our partnership with PA Consulting.

We are seeing an accelerating demand for its critical infrastructure, particularly in water, environmental and advanced facilities end markets, which are poised for substantial growth.

Consolidated backlog increased 6% year over year, bolstering confidence that our business will accelerate profitable growth as we strategically shift our portfolio to higher-value, higher-margin solutions.

Our consolidated adjusted EBITDA came in at $392 million, an increase of approximately 11% compared to same period last year and representing 11.5% adjusted EBITDA margin.

From a cash perspective, we started the second half of the year by delivering very strong operating cash flow of $483 million and free cash flow of $445 million.

We continue to expect exceeding 100% reported free cash flow conversion in fiscal year 2024, underscoring the power of our business model.

Turning to slide 7, people and places solutions line of business reported another solid top line growth, along with strong adjusted operating margins of 15.3% and adjusted operating profit growth of 12% year on year.

We ended Q3 with a strong book-to-bill of 1.53 times and record backlog.

Adjusted net revenue was up 5% year over year.

Our pipeline remains robust, and we continue to expect P&PS solid P&PS organic revenue growth for Q4 fiscal year '24.

I'm particularly pleased to report that during the quarter, we continued to deliver substantial wins in core sectors such as water, environmental and advanced facilities.

A testament to our robust market positioning, deep domain expertise and long-term trusted client relationships.

We achieved double digit growth in our water and environmental markets with two-thirds of our water related business, focusing on high-value, science-based consulting and advisory services driven by aging infrastructure and emerging PFAS regulations.

Water continues to be a foundational element of our portfolio, exemplified by key wins across various geographies, reinforcing our global leadership in the sector.

Europe, particularly the UK has shown resilience, posting a robust quarter in water related to award.

In Asia, we were appointed by PUB Singapore's national water agency to engineer and program manage the nuclear energy water reclamation plant designed to enhance Northern Singapore's water treatment capacity by 120 million imperial gallons per day.

Additionally, our partnership with Onondaga County, the Syracuse metropolitan area in central New York, which began in 2008, continues as they've chosen us to provide program management services for their efforts in controlling increased combined sewer overflow and utilizes our digital one water solutions.

This expansion will be critical in remediating aging water infrastructure and supporting industrial growth in the geography.

We're excited by the continued momentum in pipeline build in our advanced facilities portfolio, predominantly driven by life sciences, semiconductor manufacturing and AI chip driven data center expansion.

Specifically in life sciences, we continue to see robust growth with our pipeline and revenue growing double digits year over year.

Approximately two-thirds of our life sciences related business is concentrated in high-value science based consulting and advisory services.

We were selected by FUJIFILM Diosynth Biotechnologies to support the 1.2 billion expansion of their large-scale biologics facility biologics manufacturing site in Holly Springs, North Carolina, providing engineering procurement and program management services with the first phase of construction expected to complete in 2025.

We continue to see a growing pipeline in transportation and energy empowers supported by ongoing government stimulus.

As an example, in transportation, we were selected to provide program management services for Broward County transportation departments, first-ever public transit expansion.

This $4.4 billion 30-year initiative will transform the county's transportation infrastructure into a multimodal transit system with a new light rail connecting Fort Lauderdale–Hollywood International Airport to Port Everglades.

Additionally, the quarter was highlighted by several key wins in the energy and sustainability space as demonstrated by our appointment as program manager for the arches hydrogen consortium and master services agreement with Shell Energy in Australia.

PA Consulting delivered an industry leading adjusted operating margin of 21.8% with robust execution and cost discipline.

Our partnership with PA continues to be a differentiator in our science-based consulting and advisory services, together with PA, we were selected in the Hartford County UK to enhance the public highways network and accounting with services valued at approximately $22 million annually.

This collaboration focuses on sustainability and aim to deliver long-term value over an initial 5-year period with potential extensions up to 14 years.

In divergent solutions, we are encouraged by the ongoing demand for our digitally enabled infrastructure solutions that will remain with independent Jacobs post-close.

A testament to our capabilities is our recent selection by the city of Omaha to develop a data analytics and AI enabled support system for its wastewater network utilizing Jacobs' digital one water solutions Aqua DNA.

CMS delivered 35 basis points of margin expansion, the highest in 10 quarters and has a strong pipeline.

Additionally, we're experiencing encouraging trends that will support long-term growth as we approach the merger with momentum.

In summary, we remain confident in our ability to win higher value, higher margin solutions and deliver superior execution to meet our clients' expectations.

Now I'll turn the call over to Kevin to review our financial results in further detail.

Thank you, Bob.

We are pleased with our Q3 results leading to another solid quarter.

Let me begin by summarizing a few of the highlights for the quarter on slide 8.

Third quarter gross revenue grew 1% year over year, and adjusted net revenue also grew 1%.

GAAP operating profit was $260 million for the quarter and included $53 million of amortization from acquired intangibles and $73 million of transaction restructuring and other costs, including $62 million associated with the separation transaction.

We now expect our total restructuring cost to be approximately $300 million for the fiscal year, materially driven by higher separation transaction costs associated with our anticipated close now targeted during the second half of September 2024.

Our adjusted operating margin was again, a strong 11.3%.

I'll discuss the underlying dynamics during the reporting segment review.

GAAP EPS from continuing operations was $1.17 per share and included $0.31 impact related to the amortization charge of acquired intangibles and $0.49 from transaction restructuring and other related costs, which again were materially driven by the separation transaction.

Excluding these items third quarter adjusted EPS was $1.96, marking an 11% increase compared to the previous year.

Q3 adjusted EBITDA was $392 million and was up 11% year over year representing an 11.5% adjusted EBITDA margin.

Finally, consolidated backlog was up 6% year over year, and the revenue book-to-bill ratio was 1.29 times with our gross profit and backlog increasing 5.5% year over year.

Regarding the performance of our lines of business in the quarter, let's turn to slide 9, starting with People & Places Solutions.

Q3 adjusted net revenue was up 5% year over year, with adjusted operating profit up 12%.

Our mix shift mentioned earlier resulted in higher margins on lower revenue growth.

Adjusted operating margin of 15.3% was up 95 basis points year over year.

Our backlog grew by 10% year over year, while gross profit and backlog grew 9%.

This quarter's critical wins underscore our strength in water, environmental and advanced facilities, reinforcing our leadership position in these key markets these wins translated into a book-to-bill of 1.53 times and a record backlog, as previously mentioned by Bob.

Moving to Critical Mission Solutions, our Q3 revenue decreased 3% year over year, while backlog was up 4%.

Excluding the announced contract loss mentioned in the prior quarter, our revenue would have been up slightly year over year.

Our adjusted operating profit was up 1.2% year over year, while CMS adjusted operating margin rose by approximately 35 basis points year over year 8.7%, the highest margin in 10 quarters as the business continues to drive operational improvements and margin enhancing client facing projects.

Shifting to divergent solutions, Q3 saw an 11% year over year dip in adjusted net revenue and a 40% year-over-year decrease in adjusted operating profit driven by a onetime year to date, government rate adjustment and the space-based IRS are program delays that were mentioned in the prior quarter.

Despite the strategic shift and funding with the DoD, we continue to see positive momentum in our space-based ISR technology adoption leading to pipeline build and expected future backlog growth.

Now let's turn our attention to PA Consulting.

Q3 saw a modest increase in year-over-year revenue.

However, PA delivered a strong adjusted operating margin of 21.8%, reflecting a 60 basis points improvement from the previous year.

A margin results this quarter exceeded our expectations and reinforces our confidence in sustaining a strong margin profile as we continue to expect 20%-plus margins in Q4.

Backlog increased 4% year over year, and we expect improved growth as we enter fiscal year 2025.

Our adjusted unallocated corporate costs were $61 million in Q3, and we continue to make progress on simplifying and optimizing our operating model to drive costs down.

Finally, I am very excited to welcome back to the team.

We've been working together closely and we have made great progress on ensuring a smooth transition.

With that, I'll turn the call over to Venk.

Thank you, Kevin.

Let me begin by saying I'm very excited to be part of the Jacobs team and especially thanks to Kevin for his partnership and support.

I now provide a quick overview of our balance sheet and cash flow metrics, followed by consolidated full year guidance.

Turning to slide 10, we posted a strong quarter of cash flow generation, which is indicative of the quality of our earnings and cash conversion.

We generated strong quarterly free cash flow of $445 million year to date, our free cash flow conversion was well above 100%, leading to a full year expectation of greater than 100%.

Starting capital allocation, we opportunistically repurchased $151 million of shares during the quarter, which just up $55 million compared to Q2, reflecting our commitment to delivering consistent return of capital to our shareholders.

We have $528 million remaining under our current repurchase authorization.

And as we've stated before, we'll continue to return capital to shareholders while remaining committed to maintaining an investment grade credit profile.

On the balance sheet, we ended the quarter with cash of $1.2 billion and gross debt of $2.9 billion and our Q3 net debt to adjusted EBITDA of approximately [1.1 times] remains a clear indication of the continued strength of our balance sheet.

Given the strength, we feel comfortable with a portion of our debt remaining current in the fiscal year.

We have ample options refinancing as well as using proceeds from the expected separation transaction for repaying the current amounts.

As of the end of Q3, approximately 37% of our debt was tied to floating rates on our weighted average interest rate was approximately 5%.

On the dividend front, we remain committed to growing our quarterly dividend.

The Board has authorized a quarterly dividend of $0.29, an 11.5% year-over-year increase to be paid on August 23.

Turning to slide 11.

Given the solid execution thus far, we are narrowing our consolidated adjusted EPS outlook to a range of $7.85 to $8.05, representing 10% growth year over year at the midpoint.

We expect fiscal 2024 adjusted EBITDA be near the lower end of the $1.54 billion to $1.585 billion range.

This guidance incorporates Q3 adjusted EPS of $1.96 and approximately 27% adjusted effective tax rate for the remainder of this fiscal year.

Additionally, this represents 13% EPS growth in the second half of fiscal year 2024 versus the year-ago period.

Our expectation is that the ongoing positive momentum in our business will lead to increased revenue growth in fiscal year 2025 compared to our current levels.

Once we close the separation transaction, we anticipate an immediate shift in our company's growth profile, positioning us solidly for higher growth and higher margins.

As Bob mentioned earlier, the anticipated separation transaction close date is now in the second half of September 2024.

As a result, we expect Q3 to be the last quarter in which the results of the separated businesses will be included in our continuing operations.

Beginning next quarter, we expect our results for our continuing operations to reflect the new independent Jacobs.

Historical results for independent Jacobs will be available following the close of the transaction.

And lastly, we're excited to announce that we will be hosting an Investor Day for independent Jacobs on February 18, 2025, in Miami, Florida.

We look forward to sharing our long-term strategy as well as our financial target model with the investor community during this event.

Additional details will be forthcoming, and we look forward to your participation.

And with that, now I'll turn the call back to Bob.

Thank you, Venk.

In closing, we are invigorated as demand for our science-based digitally enabled solutions remains strong.

With clients continuing to select Jacobs to address their most complex challenges.

We are exceptionally well positioned to capitalize on the momentum in the critical infrastructure market, and we remain confident in our ability to grow market share and fulfill the needs of our clients across key sectors.

Operator, we will now open the call for questions.

(Operator Instructions)

Michael Dudas, Vertical Research.

Good morning, gentlemen, and welcome.

Thank.

Thank you, Mike.

Yeah.

Maybe just first to talk about your improvement in the gross margins in the P&PS backlog that you reported this quarter, up 9%, maybe a characteristic of the mix impact.

Is there any industries or end markets that have contributed more to that.

And I guess as my follow-up, as you're looking towards fiscal 2025 and the pipeline, you have in a very strong book-to-bill you had how confident do you believe that you can show backlog in and that revenue organic growth moving ahead into 2025, given where your position is today with your backlog and pipeline?

Sure, Mike, maybe I'll address both.

I'd say yes, the gross profit and backlog is definitely being positively affected by both two elements.

One, our service mix and second, the end market sector mix.

And so on the service mix, I mentioned a couple of times, we are really seeing a fundamental shift in our profile with regards to hire or in science-based consulting and advisory services.

And that's not only showing up in our results from a burn profile, but also in the backlog.

The profile of the backlog is right now at a point in time, heavily weighted towards water as well as in advanced facilities, predominantly life sciences.

And those two have a higher margin profile as well so both are having a positive effect on that.

With regards to FY25, we're looking forward to potentially another strong Q4 backlog performance booking and backlog performance leading to confidence in our revenue growth in FY25.

So definitely some nice tailwinds there.

That's great.

Bob, thank you.

Andy Kaplowitz, Citigroup.

Hey, good morning, everyone.

Hi, good morning, Andy.

So Bob, Venk or Kevin, can you give us a bit more color into the guidance towards the lower end of your annual EBITDA range.

You just said what changed versus last quarter.

Obviously, your margin's been very good.

So you're seeing delays in backlog burning, which is hurting your revenue and if anything else that you could give us in terms of color?

Yeah, go ahead Venk.

Yeah, Andy.

Yeah, thanks for the question.

So I'd say a few moving parts as it relates to the EBITDA performance.

So obviously, from the standpoint of EPS, we came in kind of the midpoint of the range as we as we guided to now as far as the EBITDA is concerned, we did allude to the fact that there were a couple of segments that were weaker than we expected.

One was obviously the CMS Cytec loss it was announced in the prior quarter and some of the devious delays that Bob alluded to in his opening script.

But I would say at a higher level when you look at the difference between the EBITDA performance and the EPS performance.

Clearly, we had a little bit of a tax benefit that helped us on the EPS front.

And then also, obviously, as you also know, we reported a pretty significant stock buybacks that reduced the share count as well.

So I'd say the difference between the EBITDA and EPS, primarily due to those two items but what I would also point to is that if you look at the PPS backlog, we feel pretty good about where are our profile of that business is heading towards both from a revenue growth standpoint as well as a margin standpoint.

Very helpful.

And then in Bob, Venk or Kevin, you kept the 13.8%-plus FY25 stand-alone margin guidance intact for now.

But obviously, your people on places margins being much higher than expected so far this year.

So how do you think about that target at this point, could there be considerable upside to that target?

And then when you think about [RemainCo] sales, I know you said you expect a pretty good year in next year.

But any reason why you couldn't expect that sort of 6% to 9% growth for people in places, at least that you've been talking about?

Yeah.

So maybe the first one with regards to our competence going in FY25, Andy, that was the reason why we put the plus there was a moving parts right now with regards to the separation.

So timing was another element that we wanted to consider performance has been solid.

So I would just -- I'd characterize it as some tailwinds that we've got going into FY25 and we'll be really clear about that as we move into the next phase.

But for competence overall.

Andy remind me again, in the second half of the questions?

You've got Jacobs consulting, what have you, but how do you think about sort of the visibility toward the core infrastructure growth in '25?

Yeah.

Sorry about that.

So yeah, good visibility there during the quarter.

We are strong tailwinds in water and advanced facilities in the areas where there was a little bit of maybe some slight, not the decay, but pause, I'd say in the UK with regards to transport in the election and then approval reprioritization of some shifts in the Middle East, specifically in Saudi.

Those haven't gone away and now with the election in the UK as well as some clarity on programs moving forward in Saudi, those also service some positive tailwinds on a mix standpoint going into FY25.

And if I could, I would say just in terms of just what we see ahead, clearly from a Q4 booking standpoint, there's still some good confidence about the strength of those bookings.

But in terms of specifics, and we'll obviously provide you fiscal '25 guidance in the next earnings call, and then we look forward to providing a much more long-term guidance, both in terms of the revenue growth as well as our profitability profile when we have the Investor Day in February.

Thank you for your questions.

Steven Fisher, UBS.

Thanks.

Good morning.

I am not sure if this one would be something you would say for that Investor Day, but really just trying to think about what's the right framework for profit growth year over year and P&PS since Bob, you mentioned that you're going to accelerate the profitable growth.

I mean, is the framework here any different than sort of the mid to upper single digit revenue growth and then some of this margin mix gets you to low double digit profit growth?

Or is something more like mid-teens possible given that you are accelerating these large awards and some of the mixed dynamics?

Yeah, I think it's early see, we're going to go through all of that in some details of, but we're really excited about the tailwinds that we see for FY25, specifically in all subsectors of the infrastructure market and advanced facilities, but we've remained very positive.

Okay.

Fair enough.

And then just to follow up on the corporate expenses, just kind of can you just give us an update on how much more clarity you have to that path of hitting the target rate that you have and maybe what the next couple of quarters you have embedded in there in that trajectory?

Well, look, Steven, I think it's clear that we're going to have a different reporting structure has Venk highlighted once the transaction closes.

So the numbers that you will see in the corporate line will start to change.

And we're working through all the reporting segments and all that kind of information for the full year reporting.

So you may not see exactly the same number and going forward, but you will fundamentally on an apples to apples basis, that [$60 million we expect will trend down to $50 million] over time, they embedded into a consolidated result for the company.

And so you may not see it broken out separately, but that's going to help drive towards that 13.8% EBITDA margin that was just asked going forward so we feel good about it.

Some of that costs will have to be targeted after separation because we still have two businesses to run so or three, I should say with PA.

And so more to come on that.

But we feel confident about the necessary cost reductions that allow us to get to the 13.8% EBITDA margin.

Sabahat Khan, RBC Capital Markets.

Great, thanks and good morning.

You talked a little you mentioned a bit of a so the ongoing in the UK a little bit.

Can you just maybe talk about just the flow of the projects you're seeing across some of the market, maybe particularly kind of the US and the UK, obviously, a lot of elections going on other puts and takes globally just in, is that trending in line with what you would have anticipated at the beginning of the year?

Just any color there would be great.

Yeah, a couple of comments let me start kind of with the US and then work my way around.

I think in the US, the flow of bid activity and pipeline across infrastructure and advanced study that hasn't slowed.

I'd say the burn rate of some of our US transport work has been a little slower from a burn standpoint, but the level of opportunities have been there in water.

I would say globally, we have seen some real positive momentum, both on bookings as well as burn, and that's across all geographies US, Europe, to include the UK, Middle East and in our Asia-Pac and ANZ area.

So water has been in that realm as well as advanced facilities, really driven by life sciences.

So I'd say that just the two areas that we saw as a part of the election in the UK, pause was transport water it kept going in the UK.

And then reprioritization in in Saudi with regards to some of the event-driven cities oriented, work are moving more towards the time-based work like the expo or the airport or infrastructure that's going to be needed with a time element to that in 2026, leading to the expo in the people who walk up.

So these are things that we're continuing to add optimism as we move into Q4 and beyond.

Great.

And then if I could maybe just follow up on the commentary around the water it's broadly heard that the demand in that space has been growing.

Can you maybe just talk about your win rate in that space?

Any particular areas within the broader water market where you might have been winning an outsized amount of work.

And if I could you maybe just talk about the progress you've made with -- in terms of any opportunities that you might have secured?

Sure. so as far as what's driving it, clearly aging the aging infrastructure is a big piece that the pieces around combined sewer overflows and what's happening with regards to climate and some of the natural disasters that we're seeing.

So I'd say that that's accelerating what's going on as well.

In the drinking water component, we are seeing an increase in PFS in addressing the PFAS regulations, specifically in the US, but also in Germany and in other locations, too.

So that's all kind of dry having that just to quantify it.

So but our pipeline in the in the water sector is up nearly 2x pertains to this time last year, and we are winning the majority of the work that we're going after.

Hence, the real attention and focus on the growth.

Andy Wittmann, Baird.

Okay, great.

Thanks for taking my questions.

I guess I just wanted to get a little clarification on the gross profit and backlog.

I guess your total backlog was up 6% year over year and your gross profit and backlog was up 5.5%.

And so that suggests that the overall backlog has a little bit lower margin in it.

I guess we've already established that the P&PS segment margin is up.

So I was wondering what the offsetting what segments they are and if you could talk about the mix in those and what occurred there.

So we can understand the complexion there a little bit better.

I think that would be helpful.

Maybe just I'll let Kevin kind of clarify the nuance within the backlog.

And then I'll talk about kind of the profile as it pertains to the various end markets?

Yeah, looks.

So what we're seeing is we've been talking about the growth profile and People & Places our top line wise, any being a little bit more muted because of effectively we're seeing more consulting science based tech technology, technical and consulting work that's happening in the backlog and the book-to-bill very strong book-to-bill is some other types of projects, which include lower margin work, which will, at the same time, create accelerated top line growth.

So it'll be a little bit a reduction in mix relative to the consulting piece versus our current levels.

And in it at the end of the day, it's going to be quite positive because we'll still see, I think, incremental margin over time and people in places because we've proven our ability to do that.

And we're going to see some accelerated growth as well associated with some of these larger, I'm going to call it projects that involve some program management and extended dollars being spent, which will include a little bit greater percentage of pass through revenue, which has more limited margin then than the high value consulting work that we do.

Yeah.

And Andy, maybe I'll just extend on that last thought that Kevin had.

So then if you break that that you cited the consolidated numbers on the 6% and the 5.5% and gross profit, if you then translate that into P&PS, which relates to the last comment that Kevin made that gum that looks like more like 10% on the top line and 9% on gross profit.

So you can kind of see the dynamic leaning towards PMPS. is growing at it much higher.

Got it.

Okay.

Yes, but that actually makes sense.

So I hope that's helpful.

I wanted to also just get an update on Bob, just on some of the actions you're taking in preparation for the splits.

I know you're looking at how your organization works and where the real cost centers are and the benefit centers are.

Can you talk about anything that you've action to date that we should know about in terms of how you've changed your business model in anticipation, have that forthcoming split things that you're able to do now before able to actually effectuate that deal?

Yeah, absolutely.

So we really looked at a consolidated company what type of corporate needs are going to be needed on more of a homogenous corporate needs or a lot more synchronized across the across the world.

So those movements to global business centers and in real streamlining of process protocols and Systematic enhancements, those have been taking place in real time from a business standpoint, we've already started to transition into optimizing on a lot of our cross-cutting capabilities, program management, digital enablement in other strong sales market, leading sales functions that will credit cost cut across the entirety of the company.

So the geographic the [new] client facing entities with cross-cutting capabilities, that structure, it's almost like being in with the being the Olympic time right now, it's already in that zone where we're handing off the baton in that in that section, we're already off and running.

Bert Subin, Stifel.

Hey, good morning.

Bob, maybe just to start with you some comments on the advanced facility side.

It sounds like life sciences continued to be really strong.

And you mentioned a data centers which are structured like this more of like a newer area for you guys in terms of that growing, I didn't hear the semi side.

Can you just give some context on sort of what the mix there looks like?

I mean, I know Intel reported and so they're taking down the CapEx.

So like what the expectation is as we move through into maybe in the '25 for advanced facilities and how it's performing today?

Sure.

To specifically on the semi, Bert, we've been working on this for a while.

So clearly, we do we do a lot of work for Intel, and that work is fundamentally on that CapEx program that they highlighted three or four years ago, we had substantially worked our way through that.

And so the news that that's come out, it's got a minimal effect on us.

The diversification of our services that we perform for Intel.

It does those kind of ongoing sustaining capital work that we do around tool installs and retrofits and layout dependent type work that will continue.

So but the good news is that our diversification into memory customers as well as other logic customers.

They're are doing work in the US and in Europe.

That's continued and we'll have hopefully some good news to share next quarter on that as well as some of the geographic expansion that's going on in places like India.

And so we have some really positive momentum going on that front.

So overall, we're still bullish on the sector and we'll continue to accelerate growth.

In the Life Sciences?

And then on Life Sciences, yes, that's really going well, right now, and it's his problem.

We have a lot of discussion around GLP-1.

But what we're seeing is Alzheimer's and oncology drugs, it's still making a really big play.

So the two big players that are in the GLP-1 sector that that is a big part of our work.

But the new awards that are coming through, whether they be in the contract or contract manufacturing space or in these other players that are have got a really nice pipeline of drugs coming in to oncology as well as enough.

And in Alzheimer's, those are those are that's really driving that optimism too.

And Bert, if I could just having mostly come from the semiconductor sector, we do see this as a secular trend in terms of where the manufacturing footprint is and across different trends.

So semiconductors in logic and memory, as Bob alluded to, and there's also a geographical shift that's happening.

So as we look at our portfolio, we have good confidence that we are pretty well diversified.

And then just the scope of the opportunities in front of us are still pretty good.

Now, obviously, any given quarter depends on what happens in the market, but I think we look at it from a secular standpoint, we feel pretty good about our semiconductor footprint.

It's very helpful.

I just a clarification there on the Bob, you'd mentioned the Fujifilm construction would start to what the Phase one was, I correct, ramped down in the first half.

Is that expected to have any meaningful impact or the award sort of backfilling that?

That's on the existing work?

What we announced goes past that.

So we're already on site doing Phase one.

What I what my comment was around Phase one, Phase two is now just starting.

Got it.

Okay.

And just as a follow-up, I mean, there's been a lot of questions on sort of the spin off and sort of the dynamics there, you know, referencing unallocated corporate expense and some of the other things, I guess, Kevin or Venk, what are some of the dynamics we should be aware of assuming on that the spin-off closes in September, and we're going into the final quarter of the calendar year.

What are some things to be aware of just from what you know from a perspective on modeling that are going to change, obviously not looking for guidance or anything like that, but just some dynamics that maybe will art not fully appreciated.

Okay.

So yeah, a couple of things.

One, when we do the Q4 results, the full year results, I should say since we're closing in or before the fiscal year.

And effectively, we will report on an independent Jacobs for the Q4 results and the full year results and reported on a historical basis as such as well.

And all of the business sets included in the perimeter, which will be merged into the momentum of business that will be basically in assets held for sale.

So you won't see that information.

We have provided you guidance for the full year similar to how we've established it for the full year.

So assuming that it closes at the end of the year, all of those numbers that we just quoted could effectively be met, but you're going to actually see a lower number.

And in the results just because some of it's now going to be because it's being put into equity directly as assets held for sale and you're going to be seeing the independent, Jacob.

So a lot of clarity will be providing to give you an understanding of what that looks like a Bert, when we do report Q4 results, but a lot of moving pieces, but kind of that's a very general view how you're going to be seeing our financials reported in Q4.

Yes.

Sorry, Kevin, just to add to what Kevin said of flow, in addition to what you said about our businesses obviously, momentum is going to have their Capital Markets Day in August 30.

So we'll have some more color in terms of their business.

And then as it relates to ours, will provide our guidance for all of fiscal '25 and our November earnings call, and I will talk about not only the revenue and our growth as well as the margin profile and then later on and during Investor Day will provide much more color about our long-term growth and up pretty modest.

Jamie Cook, Truist Securities.

Hi, good morning, I guess most of my questions have been answered, but Bob, just you know, thinking of Jacobs after the momentum spin and you're going to have a good balance sheet.

Your cash flow generation has been fairly impressive.

And I'm just thinking about the growth in the margin that you're seeing in PP&S and PA Consulting.

So just sort of wondering what your appetite would be for M&A, you know, with Jacobs after the spin, the attractive dynamics that are out there?

And then any help you can give us in tour and sort of how we should think about them.

I'm just wondering, in free cash flow conversion of the [remain] is a better story than the market anticipates.

Thank you.

Sure.

Maybe I'll take the first one, Jamie, and then Venk can talk about going forward what free cash flow free cash flow conversion looks like, but I think initially, we got a lot of options and our primary focus in the quarters that followed the separation is execution and performance and really driving that long-term margin growth profile.

We like the positioning that we're in in each of the end markets as well as geographies that we sell into.

It's not like there's an imperative, but we need to do M&A in order to catalyse growth.

We've got a great growth trajectory organically and so on.

Proving that out, not even proving it out executing on the plan that we have right now, we've got a lot of confidence in past that period.

We've got I believe you said it yourself.

We got a great balance sheet and we got a lot of options and it's a great place to be so much more to follow on that on free cash flow, let Venk talk about that.

Yeah.

And just free cash flow.

And just secondly, just to reiterate the point about capital allocation, just given what we see ahead of us in terms of the pipeline and the opportunities in front of us, I think the from a capital allocation standpoint, we we're strong believers in organic growth as the sources of capital.

Clearly, from the standpoint of the free cash flow generation and the balance sheet that we have, we do have the ability.

Number one, we do want to continue to provide our fellow shareholders, the opportunity to get dividends, but also we do will be consistent in terms of buying our shares or repurchasing shares.

And then M&A, as Bob mentioned, is also an option, but the next few quarters almost singular focus on execution.

Now it has come to free cash flow conversion.

Jamie, you rightly pointed out we've been generating pretty decent free cash flow.

We said we'll be at over 100% free cash flow conversion for the remainder of the year.

And as you deep dive into the P&PS business, which is big part of independent Jacobs, you can expect that free cash flow metrics improve over time.

Again, we'll quantify it as we get closer to the date, but we feel pretty good about where we are and where we're going.

Sangita Jain, KeyBanc Capital Markets.

Yeah.

Thank you so much for taking my questions.

I guess most of them are answers.

I'm going to limit myself to just one and are there any discrete deliverables from your side to close the momentum spin in the second half in the second half of September?

Or is it just mostly just the paperwork that's taking time.

Just wanted to get a sense of that?

All of the regulatory approvals on foreign investment, anti-trust, all of those kinds of things we've already worked through and all has been approved.

The only remaining item is the IRS ruling on our private letter ruling that we're looking for, which confirms a view that our view that the transaction is tax-free to our shareholders, that's truly what's driving the timing at this point in time, we've been having great discussions with IRS more to come that we would expect to get that approval hopefully and over the next month or so and effectively that that positions for that second half of September close, where a lot of things to do with registration for SEC distribution of shares and so on and so forth.

But Tom, really the only thing that we were looking for is the IRS ruling, and we feel confident about our credit.

Thanks so much.

Thank you.

Chad Dillard, Bernstein.

My question has to do with the top line growth rate of the PP&S business.

I'm just trying to understand the trajectory of that as we exit '24 and going into '25.

And so you're starting to kind of that like a mid-single-digit rate in 2Q.

You've got some pretty solid bookings that you got in this quarter.

And so I guess like will that be enough for the top line to get back into like that, like 6% to 9% target range?

Yeah, the backlog performance, the bookings and backlog performance Chad has been really, really solid.

In fact, the 1.53 we had to go back to see if that was a record in itself.

So we're confident that we're going to be going into '25 with some really solid growth projections, which will be very clear about when we were typically.

So that's kind of on the on the financial and the lagging indicator.

The answer is yes, on the leading indicator on the pipeline as well as where we sit in the markets where the pipeline is growing, the fastest water and advanced facilities being highlighted.

That also gives us a lot of confidence to.

So a short, a long way of answering your questions the answer is yes.

Got it.

And then just on that PP&S segment, again, on the operating margins, I guess at least on a year-to-date basis, you're running somewhere close to like 15%.

And any reason like that why that can't continue.

And then one more question for you on the 4Q bookings.

I think, Bob, you mentioned that you're pretty optimistic about that pipeline for 4Q.

Can you just give a little more detail on, do you think you can actually hit the [telco] greater than one times book-to-bill in the fourth quarter?

Yeah.

So on the on our optimism around the P&PS margins and then how that will translate into go forward margins for the whole company?

I think on slide 11, we did give some guidance on greater than 14.9%.

So it probably highlights the optimism that we have on our current reporting structure with regards to that element.

And then on Q4, a bit similar to last quarter Chad, I wouldn't make those comments unless we had already booked work in the in the 1st month of the quarter.

So I can't quite announce those right now but yes, you'll see that when we report out on Q4.

Jerry Revich, Goldman Sachs.

Good morning.

I wanted to ask a little bit people employees of the profit growth that you folks have delivered and people in places over the past five years has been our 8% CAGR over the past three years, 1% CAGR.

So as you folks think about that organic growth opportunity on a more focused Jacobs, can you just expand on that because the growth has already been, we attract them and people in places.

And so maybe give us a few threads that you'll expand on at Analyst Day and your expectations to continue to drive that level of growth or you think you can accelerate off of that level really strong performance that the business has delivered?

Yeah, Jerry, we without giving any kind of quantifiable number on where that number is going.

I would say that our pipeline where we're positioned in the end markets that we sit in today, and the tailwinds with regards to our bookings performance on that gives us a lot of optimism.

And so in November and when we report out on the full year for independent Jacobs as well as going into February and along the way in between, we'll put a lot more clarity as well as quantify what that means.

But overall, I think hopefully you're hearing some real optimism in our voices and in our performance and getting to exceeding the performance that we had for the last five years.

That's a high bar.

And can I ask in terms of just the moving pieces that you spoke about, Bob, around the UK election.

Have you started to see now the best results?

Have you seen an acceleration in activity levels?

Or what's the history lesson on UK elections and the lag to when we start to see a booking reacceleration for your business?

Yeah, I'd say there's been an acceleration in the dialogue, right?

And now those translating into those programs that were either paused or in anticipation of being put out to market, I think that's kind of the next phase.

So over the course of the next 6 to 12 months, I think we'll see that interesting enough, Jerry, the water sector in the UK has not paused at all and so that that continues on.

And then with the PA, you think about this in the UK, specifically our as well as globally, PA has about a 50-50 private sector public sector mix in their business.

The public, the private sector PA this quarter grew 11% year on year.

And the fact that the public sector was kind of in this election selection pause.

We see that kind of coming out as well, which gives us optimism not only in the Jacobs business, but in the PA business, too moving into FY25.

Louie DiPalma, William Blair.

Thanks, Bob, Kevin and Venk.

What is your forecast for on infrastructure stimulus in the US associated with the IIJA and the CHIPS, and is that contributing to your strong backlog?

I know you highlighted some recent wins with water and also others a large multimodal transportation win, but what is your general expectations over the next few years in terms of the IIJA?

Sure.

Louie, thanks for the question.

IIJA, I think these are industry numbers, so 60% appropriated, 30% spent.

So yeah, there are there is work that said that that continues to flow right now.

I think that the hurdle is 2026 said before, that's probably going to continue to go past 2026 as was discussions about a second IIJA, which we'll see where that goes within the congressional floor, but we are it is driving that, that backlog performance and in our conversion rate on that as well.

I will say this is that on the CHIPS Act, I'm sorry, one more comment on IIJA, IIJA the grant money, you can see that that's some of the work that we're seeing, not just in transport, but in water as well.

CHIPS Act, those jobs that have received CHIPS Act money.

We've been involved with those numbers.

Those were pretty much designed and already in the field and then received the funds just kind of next wave.

We're on the front end of.

And so I think that CHIPS Act money will continue to flow and represent a nice tailwind for us.

And that concludes our question-and-answer session, and I will turn the conference over to Bob for closing remarks.

All right.

Thank you, operator, thank you, everyone, for joining the earnings call.

I look forward to providing further updates and visiting with investors and analysts in the months to come exciting times ahead and look forward to staying very open and transparent with the market as we move forward.

Thank you.

And this concludes today's conference call.

Thank you for your participation, and you may now disconnect.